A PORTION of the income tax paid by Scots workers will go direct to their council, under a radical reform of local government finance announced by Nicola Sturgeon.

The First Minister said the move would encourage Scotland's 32 local authorities to boost economic growth, as they would benefit directly from extra tax receipts.

It will be at the heart of  a major shake-up of local government funding - including a replacement for the council tax - to be unveiled in full next week.

The plan was given a cautious welcome by COSLA, the body which represents the majority of councils.

It follows a long-standing pledge to reform the council tax, which has been widely criticised as unfair.

In what was originally intended as a stop-gap measure, the Scottish Government froze bills eight years ago but councils have become increasingly frustrated by their inability to raise badly needed revenue.

Councils are facing cuts of between £350million and £500million next year.

In a speech to the David Hume Institute in Edinburgh, Ms Sturgeon said: "The changes to council tax that we will propose are part of a longer-term plan.

"In particular, we will discuss with local authorities how we can assign a share of income tax revenue to their funding.

"That means that if councils succeed in boosting economic growth, and consequently income tax receipts, they will share in some of the benefit.

"And it also means that local government funding will be more broadly based. Income tax, and a more progressive council tax, will both play an important part."

She added: "It’s an approach which goes a long way towards meeting an important concern of the Commission on Local Tax Reform – that income and property-based taxes together would be a better source of revenue than council tax alone."

The commission, which included representatives of the main Holyrood parties bar the Conservatives, produced a report earlier this year which recommended using a wider range of taxes to fund local services.

It raised the prospect of a local income tax being introduced alongside a reformed version of the existing council tax.

Scottish Government sources declined to say whether the local income tax - a long-standing SNP policy - had been ditched as a result of the income tax assignment plan.

The new arrangements would take a number of years to negotiate and implement, the source said.

A COSLA Spokesman said:  "COSLA has long argued for greater flexibility for councils in all areas but particularly in relation to finance. 

"If this is a real, genuine proposal coming forward then it will be welcome.

"We really need to see in detail what the actual proposals are and what it will mean in terms of flexibility for councils.

"Given the hard financial settlement that councils have just received which included a council tax freeze, councils could be forgiven for having a degree of scepticism about these new proposals."